Category: Breach of Contract

Since high net worth individuals often operate and own assets through LLCs and other business entities, including foreign corporate entities, a plaintiff must satisfy the requirements of a veil-piercing claim in order to attach assets owned by such entities. Failing to do so could frustrate a plaintiff’s ability to satisfy a judgment, as illustrated by Commercial Division Justice Barry Ostrager’s recent decision in Pacific Alliance Asia Opportunity Fund L.P. v. Kwok Ho Wan.

On July 2, 2018, Justice Barry R. Ostrager of the Commercial Division denied a motion to dismiss by UMG Recordings, Inc. (“Universal”), an alter ego theory of liability against it in Aspire Music Group, LLC v. Cash Money Records, Inc., concluding that Aspire sufficiently alleged that Universal was the equitable owner of Cash Money to survive the pre-answer motion to dismiss.

Attorneys drafting forum selection clauses were reminded of the distinction between permissive and mandatory forum language in Justice Andrea Masley’s recent decision, Duncan-Watt et al. v. Rockefeller et al., No. 655538/2016, 2018 BL 138448 (Sup. Ct., N.Y. Cty. Apr. 13, 2018). In Duncan-Watt, the Commercial Divisionruled on Defendants’ motion to dismiss by holding that the dispute resolution clause in the parties’ licensing agreement failed to select Australian courts as the exclusive forum in which to litigate any disputes. As a result, the Court concluded that the contractual language at issue only reflected the parties’ consent to jurisdiction in Australia—not that the dispute had to be litigated there.[1]

The New York Court of Appeals, in Congel v. Malfitano,[1] recently ruled that the “Poughkeepsie Galleria Company” (the “Partnership”) was not an at-will partnership and that therefore Defendant Marc Malfitano’s (the “Defendant”) unilateral dissolution of the partnership breached the partnership agreement. In addition, under Section 69 of the New York Partnership Law, the Court sustained the Appellate Division’s valuation of the Defendant’s partnership interest, including application of a minority discount. The Court modified the order on appeal, holding that the Second Department erred in awarding legal fees in contravention of the American Rule on attorneys’ fee awards.

Operating agreements often specify dilution as the remedy for a failure to make a capital contribution. But what if your business partner fails to make a contribution and you’d rather have the capital than an increased ownership share? If the agreement only provides for dilution as a remedy, can you still sue for monetary damages? In Oneiric Holdings LLC v. Leonelli,[1] Justice Marcy Friedman held that under Delaware law, the answer to this question is an unambiguous “no.”

On January 31, 2018, the Appellate Division, Second Department affirmed, in a 3-1 decision, the Kings County Supreme Court Commercial Division’s decision, denying 159 MP Corp. and 240 Bedford Ave Realty Holding Corp.’s (collectively the “Tenants”) motion for a Yellowstone injunction. The case raised an issue of first impression for New York appellate courts: whether a written lease provision that expressly waives a commercial tenant’s right to declarative relief is enforceable at law and as a matter of public policy. The Second Department ruled in the affirmative for both.

In WL Ross & Co. v. Storper, a recent Commercial Division decision involving the private equity firm founded by U.S. Secretary of Commerce Wilbur Ross, Justice Andrea Masley suggested that New York courts can disregard choice-of-law provisions if the law of the state specified by the choice-of-law provision is “substantively similar” to that of New York on the topic at issue. Attorneys who routinely draft agreements that contain choice-of-law provisions would do well to take note of this decision, as it may imply that more careful attention should be paid to such provisions when New York law is best avoided for strategic reasons.

Suppose you’ve entered into a financial arrangement that resembles a lending agreement, but it is not formally designated as such, and you think you’re paying too much. Do you (a) sue for misrepresentation, on the grounds that you thought you were entering into a lending agreement and not some other kind of an agreement, or (b) sue on the theory that the agreement is a lending agreement, but it is usurious and therefore unlawful?

In Fidilio v. Hoosick Falls Productions, Inc., No. 654066/2016, 2017 BL 107640 (Sup. Ct. Mar. 22, 2017), Justice Eileen Bransten of the New York County Commercial Division granted a motion to compel arbitration of a dispute relating to a short-lived reality TV show, Scrappers. Justice Bransten ruled that the arbitration clause in one agreement between Frank Fidilio, the show's creator, and Hoosick Falls Production, Inc. ("Hoosick"), the production company, required arbitration of Fidilio's claims against Hoosick brought under another agreement which was executed at the same time, by the same parties, governing the same subject matter. Fidilio's remaining claims for breach of contract as a third-party beneficiary, unjust enrichment, and an accounting against Viacom International Inc. and the show's distributor, New 38th Floor Productions, Inc. ("New 38th"), were dismissed for failure to state a claim. Fidilio provides important lessons for parties considering mandatory arbitration clauses in connection with transactions involving multiple agreements, as well as for litigants considering whether claims may be subject to mandatory arbitration under provisions of related agreements.

In Lantau Holdings, Ltd. v. Orient Equal International Grp., No. 653920/2016, 2017 BL 77469 (Sup. Ct. Mar. 6, 2017), Judge Anil C. Singh of the New York County Commercial Division dismissed several claims by the plaintiff, Tarrytown-based lender Lantau Holdings, Ltd. (“Lantau”), against defendant Haitong International Securities Company Limited (“Haitong”), a member of the Haitong Group, one of China’s largest securities businesses.

Justice Jeffrey K. Oing in the Commercial Division handed down a decision recently that discusses frustration of the occurrence of a condition precedent by parties to commercial contracts. Nesconset ZJ 1 v. Nesconset Acquisition, LLC, No. 652719/2015, 2016 BL 339908 (Sup. Ct. Oct. 4. 2016). The dispute in Nesconset involved agreements between buyers and sellers of nursing homes and related health care facilities. The main issue in the case was whether the buyers could seek specific performance of the sales contract when the sellers’ conduct allegedly frustrated the satisfaction of condition precedents to the contract. Justice Oing held that a seller who frustrates the buyer’s ability to satisfy a condition precedent will be unable to rely on the failure to satisfy that condition as justification to avoid the contract and will be subject to a claim for breach of the implied covenant of good faith and fair dealing.

When can a shareholder bring a direct claim in the Commercial Division against a corporate officer under Delaware law? On September 29, 2016, in Southern Advanced Materials LLC v. Abrams, No. 650773/2015, 2016 BL 331371 (Sup. Ct. N.Y. Cnty.), Justice Saliann Scarpulla of the Commercial Division ruled on a corporate officer’s motion to dismiss breach of contract and fraudulent inducement claims brought by a plaintiff shareholder. In his ruling, Justice Scarpulla articulated the distinction between direct and derivative claims under Delaware law, and applied that law to four contract and fraud claims brought by a shareholder against corporate officer. Justice Scarpulla’s opinion provides guidance to litigants addressing shareholder claims against corporate officers in the Commercial Division.

Although defenses based on antitrust law are usually disfavored in breach of contract actions, they are permitted when an agreement on its face would require actions violating antitrust law. On September 20, 2016, in Time Warner Cable Enters. LLC v. Universal Communications Network, Inc., 652407/2015, 2016 BL 316191 before Justice Oing the Commercial Division found that cable distribution agreements requiring a company to pay to have its channel carried in additional markets are not invalid on their face.

On August 18, 2016, in Obsessive Compulsive Cosmetics, Inc. v. Sephora USA, Inc., No. 652074/2015, 2016 BL 307244 (N.Y. Sup. Ct. Aug. 18, 2016), Justice Ramos handed down an order that allowed a plaintiff to proceed with claims for breach of two verbal agreements that were purportedly made after the parties had executed a written agreement stating that the contract cannot be changed except by written agreement of both parties.

About Our Blog

Patterson Belknap’s Commercial Division Blog covers developments related to practice and case law in the Commercial Division of the New York State Supreme Court. The Commercial Division was formed in 1993 to enhance the quality of judicial adjudication and to improve efficiency in the case management of commercial disputes that are litigated in New York State courts. Since then, the Division has become a leading venue for judicial resolution of high-stakes and every-day commercial disputes. This Blog reviews key developments in the Commercial Division, including important decisions handed down by the Commercial Division, appellate court decisions reviewing Commercial Division decisions, and changes and proposed changes to Commercial Division rules and practices. Our aim is to provide you with thoughtful and succinct analysis of these issues. The Blog is written by experienced commercial litigators who have substantial practices in the Commercial Division. It is edited and managed by Stephen P. Younger and Muhammad U. Faridi, who spearheaded the publication of the New York Commercial Division Practice Guide, which is part of Bloomberg Law's Litigation Practice Portfolio Series.